South Korea and coal

South Korea and coal - According to 2010 U.S. Energy Information Administration data, South Korea was the world’s tenth largest energy consumer in 2007, and due to a lack of domestic reserves, Korea is one of the top energy importers in the world. The country is the second largest importer of both coal and liquefied natural gas (LNG) and the fifth largest importer of crude oil.

Coal reserves and imports
According to the EIA, South Korea holds only 149 million short tons (MMst) of recoverable coal reserves. Consumption reached 117 Millions of Short Tons (MMst) of coal in 2009, and mining was less than three MMst in that same year. As a result, South Korea is the second largest importer of coal, following only Japan. Australia and Indonesia account for the majority of South Korea’s coal imports. Coal consumption in South Korea increased by about a third between 2005 and 2009, driven primarily by growing demand from the electric power sector. The electric power sector accounts for more than half of coal consumption, while the industrial sector accounts for most of the remainder.

Indonesia
In March 2007, CircleOne became the second Korean company to gain resource development rights from the Indonesian government with KBB, the largest overseas mine that any Korean company has gained access to. KBB is on Sumatra Island, Indonesia, and covers 18,440 hectares (45,566 acres), about one-third the size of Seoul. Several Korean companies had been vying for the project, including SK Networks, who teamed up with CircleOne to jointly dig up the coal.

Under the 2007 arrangement, SK would invest $20 million in the project for a 23.5 percent stake. It also agreed to lend CircleOne an additional $22 million to set up on-site infrastructure. However, it all unraveled in early 2009 when SK suddenly stopped supplying CircleOne with cash - refusing to lend the company the remaining $8.2 million. Then in March 2010, SK filed a lawsuit, demanding that CircleOne pay back all the money it had been lent.

SK claims CircleOne violated the terms of the contract by skipping on regulatory approval. It added that CircleOne falsely claimed to have resource rights to the entire 45,566 acre area, but in actual fact other companies had been operating oil wells and still more were farming. SK said its loans were meant for only development, but CircleOne used them to raise wages. The court is expected to make a ruling in June 2011.

If the sides can’t reconcile and infrastructure is not built by April 2012, the Indonesian government could invoke a contractual “out” in its deal with CircleOne and reopen bidding to develop the mine. CircleOne is also showing signs it might sell its development stake to an overseas company.

Power Generation
South Korea had about 80 million kilowatts of installed electricity generating capacity in 2008. In that year, the country generated 417 billion kilowatthours (BkWh) of electricity, of which 64 percent came from conventional thermal sources, 34 percent came from nuclear power, and less than two percent came from renewable sources. Prior to the restructuring of Korea’s electricity sector, the state-owned Korea Electric Power Corporation (KEPCO) dominated all aspects of electricity generation, retail, transmission and distribution. In 2001, KEPCO’s generation assets were spun off into six separate subsidiary power generation companies. In August 2010, Korea’s Ministry of Knowledge Economy announced that the government will take direct control of five of the six generation companies; Korea Hydro & Nuclear Power Co. will remain independent.

Financing coal plants in Vietnam
In December 2010, South Korea’s Doosan Heavy Industries & Construction, the country's biggest power plant and equipment maker, sealed a $1.3bn deal to build a coal-fired power plant in Quang Ninh province in northeastern Vietnam. On December 13, Doosan confirmed that it had received another order worth $3 billion to build four more coal-powered generators, each with a capacity of 600 megawatts, in northern and southern Vietnam. Doosan said in a statement that it expects to receive more orders from Vietnam, where energy consumption is forecast to increase by 14-17 per cent a year. Doosan estimated that Vietnam needs to expand its power generation capacity by 3,000-5,000 megawatts a year in order to meet rising demand.

In its latest annual review of the business climate in Vietnam, the European Chamber of Commerce (EuroCham) warned that “the power supply/demand imbalance is beginning to have a negative impact on GDP growth”: "Some international investors have recently highlighted that threats to reliable power supplies are causing them to be wary about investing in Vietnam. The situation is predicted to get worse, since growth in demand for power is set to continue, while many large power projects are delayed due to tariff issues, projects documentation, financing difficulties and/or land clearance issues." EuroCham also argued that "the dominance of a state-owned enterprise" (in this case Electricity of Viet Nam) was squeezing out "more efficient" private sector operators.

Related SourceWatch articles

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 * International Information on Coal